Telecom Argentina SA (TEO) 2004 Q2 法說會逐字稿

Good day everyone and welcome to the Telecom Argentina conference call Today's call is being recorded. Participating on today's call we have Carlos Felices, Chief Executive Officer, Valerio Cavallo, Chief Financial Officer, Pablo Caride, Finance Director and Pedro Insussarry, Manager IR division. At this time I will turn the call over to Mr. Felices, please go ahead sir.

OK. Good morning everybody I would like to thank you for participating in this conference call. My name is Carlos Felices and I am the Chief Executive Officer of Telecom. Here with me I have Valerio Cavallo, which is our Chief Financial Officer, Pablo Caride, our Finance Director and Pedro Insussarry, our Manager of Investor Relation division.

As an introduction to this conference call I am going over some highlights of the quarter. I would like to point out that the results are positive in the operational side and show a very positive trend in the performance of the company. On the other hand, we suffered aspect of the reevaluation that we will show it through the financial result and this effect has impacting a lot, or was impacting our bottom line.

Yesterday, we reported a net loss of approximately 280 million pesos from the six-month period and the main reason for this was the loss in financial result of 298 million pesos. If we focus in our operational activities you will see that all of our business are growing in terms of customers, revenues and we continue to deliver high levels of margins and cash flow generation. Operational result, reached 132 million pesos, which is substantial improvement in comparison with a loss of 7 million pesos from the first semester of the year 2003.

The total revenues increased by 18% mainly due to the significant expansion of our Mobile and Internet business. In addition, the stable macro economic conditions contribute to the general improvement in traffic in all of our business. Later in the presentation you will see that all subscriber level, fixed lines, cellular and internet connections show a positive evolution but at a different growth rate.

Cellular subscribers continue to grow at an accelerated rate as compared to that, the one we experience in the year 2003. Additionally, we have been able to expand our ADSL services and the fixed line business continues to recover adding 122,000 lines in service year-over-year. We are seeing that the marketing generally showing signs of tighter competition.

In order to maintain our leadership position in the different markets we have increased our marketing expenses and CapEx levels as we are increasing the coverage and capacity of our GSM and ADSL networks. In addition, maintenance CapEx is being performed in our fixed line network in order to sustain quality of service.

With respect to the tariff negotiation, we signed an agreement of understanding with the Government of Argentina, where we commit to reach an agreement by the end of this year. We continue in conversations with the unit that is in charge of the renegotiations of all public service contract call concessions. We must mention that the results of the company are still been affected by the tariff freeze enforced by the Government in January 2002.

Finally, I am going to a very important issue for the future over the company. After having launched the solicitation process on June 22nd, on Monday, we announced that we have achieved a 87% participation level in our APE solicitation process. After having gone through a very long process we are happy to say that we have taken a very important step in the final phase of our debt restructuring process that we expect it to conclude in the fore coming months. After these brief introduction I would like to pass the call to Pablo and Pedro Insussarry who will go over to the into the specifics of the result that we have announced yesterday. Thank you. Pablo.

OK, thank you. Moving on with the conference call the agenda of this call as seen in slide 1 is to go over the general context and the evolution of the group. Then we will go through a brief description of the performance of our fixed line business and finally we will go over the evolution of our cellular business.

Going to slide two of the presentation, we would like to explain the most important event that occurred since the last conference call. After having announced the solicitation process on June 22nd, on Monday we announced that we had achieved an 87% participation in the APE solicitation. This level of participation may increase depending on the reception in due form of the letters of submission that rate will defined (ph) that were being presented after they submitted notice of guaranteed delivery.

In addition, we are still working with the settlement agent and with creditors in order to correct technical issues with respect to certain submissions. Once the settlement agent has revised all the documentation and the corresponding calculations are made, we will be informing the market of the final level of acceptance and the amounts of outstanding debt that will be allocated in to options A, B and C. As Carlos Felices mentioned, having achieved this level of acceptance implies that the company has taking a very important step in the final phase of the debt restructuring process.

Going to slide 3 we like to briefly detail the issues that have affected the macro environment in which Telecom operates. During the quarter the macro economic situation showed a stable evolution where the foreign exchange rate suffered a slight deterioration and CPA remains at low level. Almost all economic indicators show positive result but now at lower growth rate.

When analyzing the evolution of the Argentine economy, one must remember that Argentina is recovering from a very long recession. Additionally, significant issues are still pending of resolution such as the energy crisis that could affect the economic recovery. Finally, the change in a mood towards emerging markets and the rate of the U.S. interest rate, evidenced in recent week could negatively affect the current stability that the country's enjoy.

Regarding the soaring debts, the Government has announced that it is preparing a restructuring proposal for the approximately 100 billion in the fall for the third quarter of 2004. Final terms and condition have not been made public but may contemplate an important nominal haircut (ph) as well as lower rates and longer repayment term. Based on the response from different creditor groups the acceptance of the sovereign restructuring is still uncertain. Although, the government has complied with all the clause set in the agreement with the IMS, the continuity of the agreement depends mainly on the result of the debt restructuring.

Regarding the political situation the level of popularity of the Government has declined in recent months but the Kirchner administration continues to enjoy relatively high popular support. Finally, as Carlos Felices before, after signing the level of understanding with Argentine Government discussions with the renegotiation units continues but no significant developments have been achieved.

In slide 4 of the presentation we are making a longer view of some of the issues related to corporate development. Similar to full year 2003 the company continues to operate in a stable environment but is facing new challenges. Significant market consolidation is occurring after the announcement of mergers and acquisitions, in both in fixed line and cellular market.

The cellular market is experiencing a significant increase in the level of activity and competition that has resulted in higher commercial expenses and accelerated CapEx plan due to the installment of the GSM network. After two years of significant low levels of capital expenditures, the company is engaging in total investment projects in fixed line business in order to improve its quality of service and strengthen its market position.

Additionally the company continues to invest in the expansion of the coverage and capacity of the ADSL service as demand for broadband and services continues to increase. Finally, the earnings results are showing the effect of these factors plus the impact of wage increases granted in the second half of 2003.

Going to slide 5, we can see the evolution of the income statement. During the first semester, revenues grew by 320 million pesos or 18% compared to the first semester of 2003. It was mainly driven by the expansion of the mobile business in Argentina and increase in traffic volumes in fixed telecom.

Regarding OpEx, this increased by 280 million pesos or 35% when compared with the first semester of 2003 mainly due to higher handset costs, increases in labor cost, higher salary sales commission, higher maintenance cost and increase of the (inaudible) expenses. Meanwhile operating profit before depreciation amortization amounted to 983 million pesos, a growth of 4% when compare to June 2003. The margin reached 47% declining from 54% in June 2003.

Finally, below the operating profits, the net loss for the first semester was mainly influenced by the effect of the financial results. In addition, it must be noted that in June 2003, we have reported an accelerated gain of 374 million pesos related to the debt buy-back performed last year. Moreove, the company took a charge related to the adjustment in the evaluation of the holding in the sovereign bonds Argentina 2004 equivalent to 58 million pesos that also impacted the earnings of the company.

Going to slide 6, we are showing the revenues evolution for the first semester of 2004 compare to those of the first semester 2003. Revenues in the fixed telephony including the National telephony and data transmission increased by 71 million pesos or 6%. Increase can be mainly explained by the higher number of lines in services, increase of 5% in local and DLD traffic.

Revenues in the cellular activity in Argentina increased by 228 million pesos or 52% mainly driven by the growth in the number of subscribers and increase in usage. Revenues coming from Nucleo also show an increase of 13 million pesos or 17% due to an increase in ARPUs. Interest revenues grew by 8 million pesos or 29% mainly due to a larger number of connections to ADSL services.

Going over the main operating cost, in slide 7, we can see that labor costs (inaudible) have increased. Labor expenses increased by approximately 25% as from the first semester of 2003. This increase can be largely attributed to the incorporation of contracted employees and the increase in salaries of unionized and non-unionized employees.

Commercial cost that include advertising, fixed commissions and cost of handsets have increased by 138 million pesos as compared to the first semester of 2003 as a consequence of the increase in commissions paid to vendors, higher advertising expenses and incremental cost of handsets. The expansion of the cellular business and the increased level of competition were the main reasons for the growth in commercial expenses.

Going to slide 8, you can see the breakdown of the revenues and operating profits before depreciation and amortization by business line. We can see that the growth in the fixed line business was due to the 6% expansion of revenues mentioned before but partially compensated by the 12% increase in OpEx. In the cellular business, this effect is more evident as the growth in revenues of 47% that was mainly due to the expansion of the customer base and was partially compensated by the increase in OpEx as (inaudible) for the entire commercial expenses that was driven by the significant expansion of the customer base and the increased level of competition.

Having gone through the evolution of our consolidated figures I would pass the call to Pablo who will continue with the description of the evolution of the fixed line and cellular business.

Thank you. Before we continue I would like to clarify during the conference call and Q&A session we may produce certain forward-looking statements about Telecom's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause sTelecom's actual results and operations to differ materially. Such uncertainties include but are not limited to the effects of Public Emergency Law on Complementary Regulation, the effect of ongoing industry and economic deregulation, possible changes in the (inaudible) and the effect of marginal factors such as changes in general market or economic conditions, in legislation or regulation.

Our press release dated August 10, 2004, a copy of which will be included in the form 6-K furnished to the SEC describes the certain factors may effect any forward-looking statement that we may produce during the session. Furthermore we urge the audience of this conference call to read the disclaimer clause contained in slide 18 of the presentation.

As usual, we like to remind you that for all those that not received the press release or our presentation, you can call (inaudible) or our office, or even download it from our Web site located at www.telecom.com/ar. We will remind you that this conference call is being recorded and we will play it until August 18. Additionally this conference call can be replayed through the webcast future available in our reservation section of our Web site.

Going back to the presentation and the evolution of the fixed line business. In slide 10, we can see the evolution of the unconsolidated income statement for Telecom Argentina. During the first semester of 2004 revenues grew by 86 million pesos or 7% compared to the first semester of 2003. This is mainly driven by the increase in the number of licensers and the increase in traffic. Regarding cost, OpEx increased by 64 million pesos or 11% mainly due to the increase in labor costs. Meanwhile operating profit before depreciation amortization amounted to 748 million pesos with a growth of 3%. The margin declined from 56% in June 2003.

In slide 11, we can observe that the license service continues to increase growing year-over-year by 122,000 lines. Demand for new lines continues to be steady and the number of disconnections continues at low levels. In terms of rate, domestic long-distance rate average rate has declined by 5% since this service is under significant competition. Regarding average international long-distance rate, the company has adjusted pricing plans and launched new prepaid card that have affected the average rate that has decreased by approximately 3%.

In slide 12, we can see that the total traffic volume is approximately 3% higher as compared to June 2003 quarter. This is mainly due to the growth of local, DOD and internet traffic. For the June 2004 quarter the average revenue per fixed line customers totaled 39 pesos remaining flat to that registered in June 2003 quarter.

Moving to slide 13, during the second quarter the internet business has registered a 3% increase in terms of dial-up customers when compared to that registered one year ago. Additionally the ADSL high speed access connections increased by approximately 8,000 during the quarter and 24,000 when compared to the second quarter of 2003 to reach approximately 59,000 connections by the end of June 2004. Additionally, ADSL connections to other ISPs grew by 84% or 15,000 lines.

Going to the description of the cellular business in slide 15, we can see the evolution of unconsolidated income statement of Telecom Personal, during the semester of 2004. Revenues grew by 227 million pesos or 51% compared to the first semester of 2003. This was mainly driven by the increase in numbers of subscribers and the high levels of traffic.

Regarding cost, OpEx increased by 214 million pesos or 82% when compared to the first semester of 2003. This significant increases was mainly driven by higher handsets cost as Telecom Personal significantly increased its sales of cellular terminals, high charges related to termination of calls in other cellular networks, higher taxes due to the impact of turnover taxes that evolved in accordance to the increase of revenues, higher commissions paid to vendors related to the increase in post paid plans and prepaid plans and cards and higher commercial expenses as Telecom Personal has engaged in advertising campaigns in order to face higher levels of competition.

We can point out that the increase in the handsets subsidies amount to 28 million pesos equivalent to 400 basis points in margin. Meanwhile operating profit before depreciation and amortization amounted to 100 million pesos equivalent to a growth of 7% when compared to the first semester of 2003. The margin declined for 42% in June 2003 to 30% in June 2004.

We can see in slide 17 that the evolution of cellular subscribers continues to be strong. Cellular customers of Telecom Personal in Argentina increased by 38% year-over-year and by 9% compared to March 2003 quarter. Both post paid subscribers and prepaid customers continued to increase. Prepaid services represents 79% of the customer base of Telecom Personal. Moreover gross adds continued to grow at a steady pace and disconnections have dropped by 57% compared to second quarter 2003 when we changed the disconnection policy for dormant prepaid customers.

In slide 17; we can see that cellular blended ARPU, increased by 10% when compared to June 2003 and remains exactly at the same level when compared to the previous quarter. We must note that since the month of September 2003, revenues related to charges for the termination cost of other operators and Telecom Personal networks are contributing to the ARPU's increase. Prepaid ARPU increased by 10% when compared to June 2003 quarter but declined by 9% when compared to the previous quarter. Postpaid ARPUs increased by 7% when compared to the June 2003 quarter and has remained stable when compared to the previous quarter and having said that I would like to open it up for questions.

+++q-and-a:

[OPERATOR INSTRUCTIONS]. We will take our first question from Miguel Garcia from Bear Stearns. Please go ahead.

Thank you. Good morning. I have two questions. One is about the CapEx for the year. It seems like first half the CapEx level has been very low. Do you still maintain your $150 million guidance for the year? And second question is about the ADSL subscribers. It seems that the number of ADSL is low compared to all operations in other countries like Chile and Brazil. Do you expect the growth in broadband subscribers to pick up and start, you know, growing faster? This numbe,r this 59,000 corresponds to the market or do you generalogical (ph) limitations to grow faster? Those are the questions.

Well, regarding your first question in relation with CapEx, our estimated number for the year is approximately 140 million. Your second question was, well, ADSL services we are growing approximately 4% a month. We think that we have significant opportunities to increase this level of growth. We are doing some investment as we have mentioned in order to permit us to achieve this addition on growth. And the conclusion is yes, we think that we will grow faster than we are growing today.

Do you have an idea of how much subscribers you can reach in the next 12 months for example?

Well, our estimation is that we will reach the year-end with 130,000 customers approximately, we don't have a definitive figure yet. And well the next year we have a series of analysis, series of plans and the analysis as well as we conclude then we will have a more precise position about the numbers. But I cannot give you now an idea.

That's good. Just I like to clarify just 130 is your total or only for Internet?

Total connections including other ISD.

OK. Thanks a lot.

We take our next question from Sheik Kumara(ph) from Aberdeen Asset Management. Please go ahead.

Yes, Kumara Sheik. Question on your cellular business. Can you just split out your CapEx and for the first half between the cellular and you know the other businesses, the fixed and the Internet businesses? And the second question was regarding the free cash flow in Telecom Personal are you budgeting for that continued you know positive free cash flows and it won't require any kind of investments from the parent?

I understand that one of the conditions of your debt exchange are that Personal, Telecom Personal will not be able to distribute any dividends or make any sort of cash distribution to it's creditors including Telecom Argentina there. If you can just sort of basically the question is will the mobile unit continue to be sort of self sufficient or will it require any sort of further investment from the parent. Thanks

OK. Regarding the break down of CapEx, the CapEx level for the six months was approximately 117 million pesos. That's approximately $40 million. And the breakdown of that was approximately 10 million in the fixed line business and the rest is basically the cellular business. Again, as Carlos Felices mentioned before, for the full year we are expecting 140 million and the breakdown of that is approximately 50 million for the fixed and the rest will go the cellular and Telecom Personal. OK.

Regarding your question on the free cash flow, obviously our assumption in the restructuring is that Telecom Personal must pay its debt with its own cash flow. So, although we have some flexibility in terms of Telecom Argentina being able to fund Telecom Personal, the underlying assumption there is that Telecom Personal must generate it's own cash flow to repay its debt or preserve its debt. OK.

And finally a clarification on the dividend. The solicitation statement of Telecom Personal basically does not restrict dividends. Basically it contemplates that in the case that Telecom Personal pays dividends Telecom Argentina has to reinvest those dividends in the business.

Right OK. And then -

Right.

You are so far.

Yes, it is it's a complicating one as we give to the market. OK.

OK. And the other question I had was regarding M and A; you mentioned that there has been an increase in activity. I mean, can you just talk any plans that you may have with regards to that as you come out of restructuring? And then the last question I had was just if you can just reiterate what your policy is going to be with regarding - with regards to hedging your debt because obviously you know the debt continues to be you know denominated in foreign currencies? And so any kind of program you will have to hedge or policy that you will have to hedge going forward? Thanks.

Well, in terms of M and A, we don't have any plans to make any acquisition. I don't think it would be serious for the company to make acquisitions in the moment that we are finishing the process of restructuring over debt. And the second question was ---

Relating to hedge.

Well, now we don't have plans for the time being to hedge our exposure and I think that you will understand that the numbers to be hedged are very high here and I don't if we will have the market to hedge, I don't know $2 billion in, to our exposure. Means that - and if we try to do it, it will be very expensive. In that, for the time being in that we don't have any idea to hedge our positions.

And just a follow up question on that, I mean my understanding is that a couple of companies in Argentine have recently borrowed in pesos, Argentine pesos so, could you just remind us why you decided that you didn't want to do that as part of your overall sort of restructuring plans? I guess it's a bit late, you know, bit late now but just, just if you could remind us why you went down that path?

It is true that some companies get some financing in pesos. But what we have to remember is that we have a debt in dollars and what we are trying to renegotiate is this debt in dollars. I will be very pleased that our creditors accept a dollar, pesos instead of dollars but as you will understand we will not have a big audience for this type of proposal.

No, it wasn't so much asking your, you know, the hard currency lenders to swap into local currency. What I mentioned is if you get fresh money in local currency then convert and just pay off more of the bond.

We are finishing again. Let's put where we are. We are finishing the restructuring. In the process with it a very precise calculation of where we assume we will be and we contemplate or we plan to have enough funds to support or to finance our needs in the years to come. I mean that we don't have plans to borrow pesos and on the other hand we have certain limitations to borrow amount of money. Means that we will try to be very careful in managing our cash flows in order to not to produce any problem with these limitations.

And apart from that you understand that all the funding in pesos is very short term so it is impossible to find a long term funding in pesos to convert all our debts from dollars or euros to pesos.

OK, thanks.

Thank you.

We will take the next question from Myriam Chang from Credit Suisse First Boston. Please go ahead.

Hi I have two questions, the first one is regarding the margin contraction on your cellular business. I have a question, the line named titled other expenses or others. I see that that's the one that has increased quite a bit year-over-year and just wanted to see if you can give me a breakdown of what is included in this item? Is it the cellular handset cost that you mentioned earlie,r that would explain about maybe half of that increase in you know if you could tell us what else is in there?

And my second question is regarding the out pay (ph). You have mentioned that you have got 87% approval so far you are expecting additional letters of interest memo(ph) to be sent in. What percentage you think that would you know add up to what you already have and with that you know will you get more than 95% at the end of the day when all the letters are in. I understand that, you know, if that's the case if you get more than 95% you have the right to conduct the restructuring without court approval without using the out pay mechanism.

So I just wanted to see you know if you are close. Do you think you will get there or and regardless of whether you get more or less than 95% could you tell us an estimated time life for the completion of the restructuring and/or what are the next steps you see you will undertake towards the completion? Thank you.

Regarding the others as you have mentioned basically that is cellular handsets and cellular handsets costing for the cellular business and the other - the other cost there is in termination of callers into other cellular networks, what we call the TLRD, as we started to recognize those costs as of the second half of 2003 and that's why you had a significant increase in that sense and also the additional the incremental traffic that was generated by the cellular business. You want to answer the ...

Yes you asked about our response to the APE solicitation. The response of creditors to the APE solicitation. What we know exactly and we informed is the 87%. We are working in documentation in order to arrive to the final figures and we expect that will be very soon and we will update the market as soon as we have this final figure.

To the question of the 95%, we are evaluating the options and the costs involved and the risk involved. It is very important to know who is the rest of the 5% or who is the 5% and we can and so the 5% means that we are not in condition today to give you a view of what is going to be our final decision in this regard.

OK and just do you have any idea of the range of how many more letters of transmittal you might get? Is it 5%, 3% or maybe up to 10%? You have any idea whether you will -- if there is any chance you will reach the 95% or?

Well I have ideas but I would like to be more precise and work with precise documentation because --.

OK.

As you can imagine this is a very delicate issues and I would not like to confuse the market --.

Yes, I understand.

-- with wrong informations.

OK, thank you very much.

You are welcome.

We will take our next question from Rizwan Ali from Bear Stearns. Please go ahead.

Good morning. My question is regarding the subscriber acquisition cost to be as if subscriber acquisition cost must have increased quite a bit in the second quarter compared to the first quarter as well as since your last year. Can you tell us what the cost is? And the second thing is, you discussed about tariff negotiations with the government, I believe you don't expect any tariff increases for the rest of this year but can you specify what to expect next year or going onwards? I am sure that the negotiations not to increase tariff this year may have been conditioned on what may happen in the subsequent years.

Let me answer your question on the tariff. We are looking for some information here. The tariff we signed an agreement with the government that we will not increase our tariff till the end of this year. We had started conversation with the Univen (ph), which is a sort of commission that the government put to discuss the contract of different activities. The evolution up to now have been very low, we had three or four meetings and really I cannot say today or I cannot predict from the information that I gather in these meetings, a trend of increases that we will have in the next year.

So, I think we have to continue working and the experiences with other activities that went through the committee are not very good, probably you know what had happened with electricity and with gas and all of them have been having problems. It means that we need to continue working very hard and I think that will take more time than expected. And Pedro do you we have the answer for the first part of the question?

The subscriber acquisition cost average for the 6 months on a per customer basis was approximately 145 pesos per month and compared to approximately 33 pesos per month for sub last year. You must remember that in specially in first half of 2003 we basically with the level of competition was much lower than what we have today. And so that means that the level of advertising that we had was much lower. Second the level of subsidies were, as a matter of fact, until the second half of the year we were not subsidizing handsets. And finally due to the significant increase in the demand we also see an increased inflammation (ph). So that's goes out the three main factors that explains the significant increase in the subscriber acquisition cost.

And is it a big difference between the first quarter this year and the second quarter this year?

On average, no. I would say it has been increasing but not a significant increase.

Thank you very much.

You are welcome.

our next question comes from Andre Baggio from JP Morgan. Please go ahead.

Hi I just want to question on the mobile bill. First do you expect this high growth to be continued for how long? And the second, this, the quality of the subscriber that you have been adding is are it good quality, like say with ARPU similar to the levels of existing clients and is do you see any meaningful continuous recovery of the ARPU of the existing subscribers?

Regarding future growth, I would say if the macro situation in Argentina continues to be stable as what we are experiencing today you should see significant levels growth levels going forward at least for next year. Regarding the quality of the customers that we are acquirin, well, as you can see in the evolution of the ARPUs, ARPUs are basically flat. And this basically is a good evidence that we are acquiring customers that are generating good levels of ARPU.

One clarification regarding that that's we choose to the level of competition we are happy and basically launching and implementing different promotion actions and implementing new pricing plans that basically are mainly focussed on incremental airtime with promotional prices for monthly fees. Or, for example, with prepaid when you acquire a handset you get an X amount of free minutes for the first two months. So going forward you should start to see ARPUs gradually declining basically because of the type of competition that we are seeing in the market.

No, and I think we have to consider too that in general, the experience in this market is that the new customer average ARPU is lower than the last one. Means that in general terms what you will see is a decrease in the ARPU if the evolution of this market is line with evolution of others or with experience we have in the 90s when the first mobile business started in Argentina.

OK, thanks a lot.

You are welcome.

We got the next to Jamie Garza (ph) from CitiGroup. Please go ahead.

Thank you good morning gentlemen. I have a few questions. With regards to your APE, we seen that in the other cases companies such as Galaxia and other Argentines have, have performed the exchange even prior to filing for the APE. And at the same time we understand that judges locally may take longer than one would like in approving such APE. So my question is do you see yourselves performing an exchange prior to filing, or at least a prior to getting such approval from the judges or would you do the exchange post such approval?

On the operating side, I just have a couple of question, which goes again to the performance of your cellular business. If mentioned that you are going through higher acquisition costs and subsidies of the handsets etc. Where do you seeing the EBITDA stabilizing for your cellular business ...we can obviously see that revenues are going up but the contribution in terms of EBITDA is the same and that means your margin is going down. Maybe for one-time costs as one of my colleagues mentions where I like to get a better feel for where you see the EBITBA stabilizing.

Finally the other question is at that more in the accounting side. I see the appreciation going substantially down and I was just wondering that there is a change in accounting or phasing out of assets? What's going on in that way? Thank you.

Well, let me try to answer the first part of your question I understand that the Galaxia, one go Galaxia didn't go through an APE process. Our view is that, not our view but we are going to do is as soon as we finish the process, means that the process goes to the judge and goes through all the legal necessary steps that we have to follow, we will do the exchange. But not before.

And we have, as was mentioned before, this option of the 95% but as I said we will, we have to make a deep analysis of the both of what CD's we have the problems is necessary to make a very precise analyzes of what does it mean this or who are they, the ones who has this 5% because this it something that we have to solve. Before going the way of the, going out of the APE.

And you have asked about the margins in the cellular business. I think that we are making a substantial effort to make, to have the margins at the level we have today and we continue doing that. What we have to understand than this is a market under development, that the networks are not 100% finished. That we have a new competitor GTI, which is operating in a very aggressive way in the market. Means that our focus had been in maintaining our margins at least in absolute value and we know that we will lose some margins in terms of percentage.

And we will continue therefore as I said to try to fight for the margin because, we think is critical in the situation of the company. The company has the obligation to honor its debt and we need to do have a strong cash flow generation in order to cover debt and some investments that we have to do

But, do you see that you will as, you know, finish acquiring customers and decrease the level of your marketing efforts and etc, do you think that its going to be washed away by lower revenues due to competition and hence you will probably stabilize that at the percentage EBITDA margin that you highlight now or you see it improving a bit as you face out your growth in this business?

Well, I think again that the penetration in the mobile business is still at a very low level we are talking in penetration between 25% and 30% and we think that should be higher than that. In that, that is a period of time where we will have certain degree of turbulence, turbulence and these we have impact in our margins. At again while we look in for this is a generating or been efficient in the administration of our resources in order to increase our margins or to maintain our margin.

OK.

It is difficult to say at where we will finish but if you make some comparisons of how we performed regarding our competitors you would see that we have been very cautious in managing our expenses in controlling our margin.

OK. Just to finish up very quickly without pretending to be the legal expert. Please correct me if you think I am wrong, but the APE process is still something with very little precedent and my understanding, my feeling is that regardless of achieving that 95%, you perhaps can actually perform the exchange prior to filing or getting any type of approval for the APE. And it seems that at this point you're probably at that level in the high nineties or something like that participation.

So again, do you see yourselves exchanging this prior to leaving it at the hands of judge? To come back with an approval or will do and wait for that guy to approve it, to bring in the remaining 5% or whatever. I am just concerned that, it will be in the court for quite sometime and then you will obviously miss the October target that you have for the exchange.

Well, let me tell you something that we have been very careful in managing all the previous steps to arrive to the position where we are today. And we will continue in the same, at the same path. We don't want to rush and make a mistake that we will delay the exchange because a legal process. There are many examples in Argentina of APE that has been close, and the exchange cannot be performed because legal claims. We are going to be very, very careful in this sense and we will not take any risk that puts us in a situation where we have a legal claim and a small amount that delays the transaction that involves of creditors. Means that our basis of base of creditors is enormous we have more than 20,000 retained investors. Means that we have very, very careful with the steps and this is what we are doing

OK, when are you announcing--

We are below, let me tell you one last comment and I hear you. Below a 95% we will not pursue that an exchange.

OK, when are you announcing the allocations of the restructuring?

Well, as soon as we have the final results that we expect in going to be mid next week probably.

OK, thank you very much gentlemen.

You are very welcome

[OPERATOR INSTRUCTIONS] We will take our next question from Miguel Garcia from Bear Stearns. Please, go ahead.

Thanks for the follow-up My question is about the what is the strategy to expansion of wireless in terms of our CapEx and build up of network and even the growth in subscribers? Are you entering a new market, which is the south of the country where you have a lower presence or you are concentrating in increasing capacity and subscribers in the traditional northern area and Buenos Aires.

We are focusing our investments where we have our main presence which is in north of the country and in Buenos Aires We have some plan to go to the south but we would like to do first is finish with a plans of installments that we have in the north. I can assure you that the plan is quite ambitious and will demand all our resources. In the south, we are operating we are roaming, means that our customers can travel to the south without any problem. In that the focus is going to be Buenos Aires first and then the north second, or simultaneously

Thanks a lot

We take a next question from Juan Cruz (ph) from Miller Tayback (ph). Please go ahead.

Yes, thank you. I guess I have a follow-up question on the APE process. If you reach that 95% participation and again I just want to go back to the other participant said that we have seen APEs that takes way too long maybe a year or so, is it possible for you to withdraw your APE request? Can you do an exchange outside of court and just be don with it? Or are you legally required to do the exchange through the APE?

I think this is a quite complicated (inaudible) question. Our understanding is that if we want to change any rule here we have to do everything again. And everything again will expose us to start with discussions with creditors about pricing and about new situation. In that, from my point of view, what we try to do manage but we have in our hands and trying to be as much efficient as we can

So, OK, let's say by August 13 we don't reach that 95% threshold. What happens next? Do you extend it, or continue to extend it or what's the next step?

We don't have the 95% we will go through the APE.

You will go through the APE. And no notes will be issued until the APE has been officially approved by, by a judge.

Exactly.

OK. My another question I have, is I read in this local press last week that the, there was rumors about Telmex been interested in buying companies or parts of a company and Carlos Slim being around basically trying to buy more assets in Argentina, which he has bought a lot lately, can you comment on that, make any comments?

Well as you probably areaware this is a public company, Telecom is a public company and we have any information I will tell you that we will immediately inform the market about the situation. I think the rumors are not serious and I will not pay more attention in that.

OK thank you.

And there are no more questions in the queue, therefore I like to turn the call back over to our speakers for any additional or closing remarks.

Well from our side I would like to thank you very much for your patience and the time that you dedicate to Telecom and thank you very much and looking forward to talk with you soon. Thank you.